Avoid Foreclosure Glossary

Abandonment
The situation in which a homeowner leaves a house with no intention to return.

Accrued Items of Expense
Those incurred expenses that are not yet payable. The seller’s accrued expenses are credited to the purchaser in the closing statement.

Apportionment
The adjustment of the income, expenses, or carrying charges of real estate that are usually computed to the date of closing of title so that the seller pays all expenses to that date. The buyer assumes all expenses from the data on which the deed is conveyed to the buyer.

Appraisal
An estimate of a property’s value made by an appraiser who is usually presumed to be and expert in this work.

Appurtenance
Something which is outside the property itself but belongs to the land and adds to its greater enjoyment, such as a right-of-way or a barn or a dwelling.

Assessed Valuation
A valuation placed upon property by a public officer or a board as a basis for taxation.

Auction
The process of selling property at a public sale to the highest bidder. The person conducting the sale will call out the initial asking price and each price that anyone in the audience bids until no one will bid a higher price. The auctioneer then calls out “going once, going twice, sold to the highest bidder!”

Automatic Stay
A bankruptcy court order. When bankruptcy is filed, the bankruptcy court will issue a court order that prevents any creditor from attempting to collect any debt from the person who declared bankruptcy. Creditors, even though they are owed money, may not undertake foreclosure, repossession, eviction or seizure, or even call or write the debtor demanding payment. Instead, they must all come to the bankruptcy court and seek the money they are owed together with the other creditors.

B

Balance Owed on the Loan
The part of the original loan that remains unpaid by the borrower at a given point in time.

Bankruptcy

Debts discharged through bankruptcy are not considered taxable income.

Bearer
Lender in whose hands the promissory note remains until it is paid in full.

Beneficiary
(1) One entitled to the benefit of a trust: (2) One who receives profit from an estate, the title of which is vested in a trustee: (3) The lender on a security of a note and deed of trust.

Beneficiary’s Statement
(“Benny Statement”) A written statement of the conditions and remaining balance of a loan secured by a deed of trust.

Broker Price Opinion
A real estate broker’s estimate of the price for which property can reasonably be sold. The broker price opinion is often much cheaper than a professional appraisal, but often just as good, or even more useful because it tells the owner at what price the property can successfully be marketed.

C

Certificate of Sale
A document indicating that a property has been sold to a buyer at foreclosure, subject to a right of redemption for a set period after the foreclosure sale. In an IRS, the redemption period is 180 days. The redemption period is different in other types of foreclosure. Many foreclosures take place without any certificate sale. Instead, if the sale is final, or near final, the buyer gets a deed rather than a certificate of sale.

Certain farm debts

If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your canceled debt is generally not considered taxable income. The rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception.

Chain of Title
A history of the conveyances and encumbrances affecting a title from the time the original patent was granted, or as far back as records are available.

Chattel
Personal property, such as household goods or fixtures

Clear Title
Ownership rights to a piece of real estate that are not diminished by liens, leases or other types of encumbrances. No other ownership claims exist.

Cloud on the Title
An outstanding claim or encumbrance that, if valid, would affect or impair the owner’s title.

Conditional Sales Contract
A contract for the sale of property stating that, although delivery is to be made to the buyer, the title is to remain vested in the sell until the conditions of the contract have been fulfilled.

Conforming Loans
Loans that meet FNMA standards.

Conventional Lender
A lender that makes conventional loans.

Conveyance
The process of transferring title or some interest in real estate to a new owner.

Cram-down
A chapter 13 bankruptcy arrangement in which a plan to repay lenders and creditors, which was developed by the debtor’s attorney, is ordered into effect by the bankruptcy court. It is crammed down on the sometimes unwilling creditors.

Cured Default
Correction of a borrower’s failure to make payments or meet the terms of a loan to the lender’s satisfaction.

D

Decree
The final order of a court in many states.

Deed
The legal document commonly used to transfer ownership of real estate from one owner to the next.

Deed in Lieu of Foreclosure
Instead of waiting until the lender forces the sale of the house in foreclosure, usually to the lender; the borrower just deeds the property to the lender.

Deed of Reconveyance
An instrument that releases and discharges a deed of trust.

Defeasance Clause
The clause in a mortgage that permits the mortgagor to redeem his or her property upon the payment of the obligations to the mortgagee.

Deficiency
Money a borrower who has lost real estate in foreclosure still owes to the lender because the foreclosure sale failed to generate enough to pay off the loan. Frequently, lenders acquire title to real estate at foreclosures, in which case they most often give credit only for the fair market value of the property against the balance due on the loan. Any unpaid balance on the loan after all just credits are applied is the usual amount of a deficiency. Many states limit or restrict deficiencies.

Deficiency Judgment
A court judgment that a defaulting borrower owes a deficiency.

Delinquency
The state of affairs when payments on a note or other loan obligation are past due.

Discharge of Indebtedness
A lender tells a borrower that a loan doesn’t have to be paid back, also called discharge of debt.

Double Whammy
Some lenders refuse to permit assumptions, which is one blow, while at the same time insisting on a hefty prepayment penalty when the non assumable loan is paid off early, which is a second blow.

E

Easement
A right that may be exercised by the public or individuals on, over, or through the property of others.

Entry and Possession
A method of foreclosure used in some states in which the lender, who already owns the property, reenters it and takes possession away from the borrower, either peacefully or by court order.

Equity Skimmer
A scam artist who assumes a loan and collects money up front, and possibly rents, then refuses to pay the payments on the assumed loan while keeping the cash paid up front.

Eviction
The legal procedure to have a tenant forcibly removed from a dwelling

Extending the Loan Term
Giving the borrower more time to repay a loan.

FNMA
A government-chartered but privately owned corporation that buys mortgages from mortgage companies. Also called Fannie Mae

Forbearance
A lender voluntarily accepts payments that are lower than originally agreed in the loan documents for a limited period of time in order to allow the borrower to recover financially. The borrower must eventually repay the missing or reduced payments, as well as all the other remaining payments on the loan.

Foreclosure
The forced sale of a piece of real estate to repay a debt.

Freeze Order
A bankruptcy court order. When bankruptcy is filed, the bankruptcy court will issue a court order that prevents any creditor from attempting to collect any debt from the person who declared bankruptcy. Creditors, even though they are owed money, may not undertake foreclosure, repossession, eviction or seizure, or even call or write the debtor demanding payment. Instead, they must all come to the bankruptcy court and seek the money they are owed together with the other creditors.

G

Grace Period
Additional time allowed to perform an act or make a payment before a default occurs.

Grant Deed
A deed of conveyance that implies that the grantor (seller) is granting an actual interest and has not previously granted such interest to anyone else.

H

Homestead
Special legal protection that many states give to a person’s principal residence.

Housing and Urban Development
A department of the federal government that administers housing programs.

I

Impound Account
An account held by the lender that is used for him or her to advance payments of certain expenses or charges that are incidental to property ownership and that may protect the lender’s security.

Insolvency.

If you are insolvent when the debt is canceled, some or all of the canceled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets. Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.

Involuntary Lien
A lien imposed against property without consent of the owner, e.g., taxes, special assessments.

J

Judgment
The final decision of a court.

Judicial Foreclosure
A foreclosure action that is executed by the court.

Junior Lien holder
A holder of a right to force the sale of property that is inferior and subordinate to another lien holder’s right to do the same. A junior lien holder who forces the sale of the real estate must either pay off the senior lien or make arrangements to make payments on it to prevent it from being foreclosed. The foreclosure of a first lien destroys the right of a junior lien holder to foreclose, but the foreclosure of a junior lien does not affect the right of a senior lien to foreclose.

L

Liquidating Plan
A plan by which a borrower repays missed payments to the lender over time.

Liquidation Appraisal
An estimate of the value of property when it is sold quickly in a forced sale. Usually, this figure is lower than fair market value for a regularly conducted sale.

Loan Modification
A procedure in which a loan’s terms, such as the interest rate, monthly payment or term, are altered.

Lot Book Report
A report made by a title company that identifies and encumbrances recorded against a particular property. A lot book report does not identify liens recorded in the name of the owner that may affect property.

M

Mechanics Lien
A claim made to secure the price of labor done upon and materials furnished for uncompensated improvement.

Modification
A procedure in which a loan’s terms, such as the interest rate, monthly payment or term, are altered.

Mortgage Reduction Certificate
An instrument executed by the mortgagee, setting forth the status of and the balance due on the mortgage as of the date of the execution of the instrument.

Motion to Lift Stay
A formal request to a bankruptcy court to dissolve an automatic stay that prevents a lender from foreclosing. Once the motion is granted, the lender may proceed to foreclose unless the borrower can keep up the payments.

N

Negative Equity
A position in which a borrower owes more on property than the property is worth.

Non-judicial Foreclosure
Foreclosure on a mortgage without filing a lawsuit or obtaining a court order. Generally such sales occur because the borrower has signed a document, such as a deed of trust, giving a trustee pre-authorization to sell the real estate to pay off the debt.

Non-recourse loans

A non-recourse loan is a loan for which the lenders only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income

Notice Of Default
Letter sent to a defaulting party as a reminder of the default. It may state a grace period and the penalties for failing to cure the default.

Notice Of Rescission
A document that is used to cancel a notice of default and declare that the default has been corrected.

O

One Action Rule
A rule of law, used heavily in California, that forces a lender to bring only one court action or proceeding against a borrower in a foreclosure. The one action rule makes it difficult for a lender to obtain a deficiency judgment against a borrower.

Open Mortgage
A mortgage that has matured or is overdue and, therefore, is “open” to foreclosure at any time.

Out-Of-Court Foreclosure
Foreclosure on a mortgage without filing a lawsuit or obtaining a court order. Generally such sales occur because the borrower has signed a document, such as a deed of trust, giving a trustee pre-authorization to sell the real estate to pay off the debt.

P

PMI-Assisted Presale
An arrangement in which a private mortgage insurance company pay for part of the loss that occurs when a house with negative equity (one worth less than the balance on the existing mortgage loan) is sold by regular means prior to a foreclosure.

Q

Quiet Title Suit
A suit in court to ascertain the legal rights of an owner to a certain parcel of real property.

R

Real Estate Owned
Property acquired by a lender through foreclosure and held in inventory; commonly referred to as REO.

Recasting
Restructuring a loan with a new interest rate and term. It may be the same loan from the same lender, but the terms change. FHA has a formal procedure to recast loans to assist home buyers to stay in their houses

Redemption
The right of a mortgagor to redeem property by paying a debt before sale at foreclosure; the right of an owner to reclaim his or her property after it has been sold to settle claims for unpaid taxes.

Redemption
The right of a mortgagor to redeem property by paying a debt before sale at foreclosure; the right of an owner to reclaim his or her property after it has been sold to settle claims for unpaid taxes.

Release Of Liability
The document that relieves a person who is obligated to pay a loan of any further obligations. It may be obtained when a buyer takes over the payments on the seller’s old loan, provided the buyer meets the lender’s standards for income and creditworthiness. If granted, the release of liability means the seller will not be responsible if the buyer fails to pay.

Repayment Plan
A plan for repaying missed payments over time

Request For Notice Of Default
A document that under statutory provisions, allows certain interested parties to request and be entitled to notification of a default.

Right Of Redemption
The right of a mortgagor to redeem property by paying a debt before sale at foreclosure; the right of an owner to reclaim his or her property after it has been sold to settle claims for unpaid taxes.

S

Scire Facias
A court command to a borrower to show up at a hearing and show cause why a foreclosure should not be authorized.

Short Payoff
A workout procedure in which the lender accepts less than the full balance due on the loan as part of a deal in which the borrower cooperates with the lender to obtain a quick sale. The lender skips foreclosure, which would take time, cost money and expose the house to vandalism, further declines in market value, and marketing costs for resale.

Strict Foreclosure
A legal premise followed by some states that the lender owns the property and may simply evict the borrower for nonpayment and gain full and complete title free of the borrower’s claims by waiting a prescribed period of time until the borrower’s right to redeem ends. The lender gains the value of the land above what is owned on the loan.

Summary Judgment
A legal procedure in which one side wins a lawsuit without a trial by showing that the case involves no material fact issues, but only legal issues that can be decided by the judge. If the judge agrees, then one side wins by Summary Judgment.

V

Veterans Administration
The arm of the federal government that guarantees loans and performs other services for veterans. This agency was formerly known as the Veterans Administration (VA).

W

Wrongful Foreclosure
A foreclosure that was legally improper and that caused a borrower to suffer damages.